HealthSouth's Smith Becomes Key Ally Against Firm, Founder

Mar 21, 2003 | Wall Street Journal

Last August, Weston L. Smith was seen as a critical part of the team at HealthSouth Corp. He was going to be the chief financial officer of a surgical-center firm that the health-care giant planned to spin off to shareholders.

Mr. Smith "will make an outstanding CFO ... and I think he'd be a real asset," Richard Scrushy, HealthSouth's founder, told investors at the time.

Now, Mr. Smith is an important government ally against HealthSouth and Mr. Scrushy in an alleged $1.4 billion accounting fraud at the Birmingham, Ala., concern.

While the scandal came as a shock in the close-knit city of Birmingham, investigators at companies such as Enron Corp. and WorldCom Inc. the sites of other corporate scandals have learned that number-crunchers can be a valuable source of information.

Indeed, some people familiar with the HealthSouth investigation think Mr. Smith might have come forward before he, too, was ensnared in a scrutiny of the company that began last year. After Mr. Smith, a certified public accountant, provided investigators with a roadmap of how HealthSouth allegedly cooked its books, a federal SWAT team searched the company's offices, carting away computers and records.

Thursday, neither Mr. Smith, who has pleaded guilty to conspiracy to commit wire fraud and securities fraud, nor his attorney could be reached for comment.

On Wednesday after the disclosure of the Securities and Exchange Commission charges, Mr. Smith's attorney, David McKnight, said Mr. Smith had accepted responsibility for his actions, is cooperating with the government investigators, and hopes to right HealthSouth's problems.

A 1982 graduate of the University of Northern Alabama, Mr. Smith joined HealthSouth in 1987 as an officer in the reimbursement department. He was one of two former Ernst & Young LLP accountants who joined the ranks of the once-highflying firm. The other was Bill Owens, HealthSouth's chief financial officer who Thursday was placed on administrative leave.

At HealthSouth, a person familiar with the company says, Mr. Smith was adept at navigating the arcane rules of Medicare, the federal health insurance program for the elderly and disabled. That was critical for HealthSouth, which was heavily dependent on Medicare reimbursements. Mr. Smith was one of several key financial lieutenants on whom Mr. Scrushy depended.

By March 2000, Mr. Smith was controller at HealthSouth. In August 2001, he vaulted into the top financial job as finance chief when Mr. Owens was named president and chief operating officer.

Last summer, HealthSouth announced its plans for the split-off of the surgical-center firm. But the idea was put on hold in October because of poor stock-market conditions, HealthSouth said at the time.

In Birmingham, Mr. Smith is known as "an A+ guy," said Aaron Freeman, a neighbor. "If you broke down in the middle of the night, he's the kind of guy who would come and get you," Mr. Freeman said.

"I'm very shocked and very upset," said Mr. Freeman, adding that he left a letter in Mr. Smith's mailbox offering prayers and support. "He's a wonderful person."

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